of really smart phones changes architecture of internet and web – Hypernet: internet overlaid with smartphones – Hyperweb: software infrastructure for the above; access to many clouds from your body • Major changes in use cases (e.g., index search MUCH less important on phones) • The most valuable transactions are on devices on your body, not on PCs • Mobile requires a different design sensibility than web – Some giants (e.g., Google, Facebook, Microsoft) have not extended business model to mobile, making them vulnerable; this levels playing field for all • Inconvenience of moving content libraries will ensure fragmentation of “The Cloud” • Time Horizon: 2011 and beyond • Confidence: High • Outcome: Potentially the most disruptive change on the horizon 1 Elevation: 10 Hypotheses for Tech Investing Hypothesis: Smart phones are 50% of web devices; data distributed in many clouds = hugely disruptive. Revision 5.3 – July 23, 2011
development on Windows platform has all but stopped; developers focus now on web, Apple operating systems, and open source • Thanks to Microsoft’s subscription model, Windows is a tax on customers – Each desktop eliminated saves $1000 in support per year • In 2011, Windows devices will account for <50% of internet-connected devices for the first time, down from 95% 4 years ago; smart phones and tablets taking share rapidly. • Microsoft can shift model to leverage Exchange monopoly; should enable major growth in profits for five years • Will shift to smartphones/tablets favor SaaS over established client/enterprise apps? • MSFT acquisition of Skype may be brilliant; global telecom co. for $8 billion = bargain • Time Horizon: Unknown • Confidence: Very high over a five-year term • Outcome: Exceptionally bullish for those who can take a meaningful share of “Windows dollars” and “SAP dollars” as they redeploy. 2 Elevation: 10 Hypotheses for Tech Investing Hypothesis: Windows no longer provides a measurable ROI to enterprises, who will eventually reallocate tech spending Revision 5.3 – July 23, 2011
principle of the HTML 4 web is “page rank.” Every page is included in Google’s index, which has invited manipulation of algorithms. Signal-to-noise ratio of index has become unacceptable. – Google has been losing “search” share for years, as new models sliced off parts of the market. Index search may be down to half the search market, broadly defined. 8 Wikipedia: facts Yelp: local and restaurants 8 Facebook: social, taste, money LinkedIn: business people 8 Twitter: real-time search Realtor.com: real estate listings – Google share on mobile and tablet MUCH lower than PC; Android does not fix this. • Google has many opportunities but margins likely to be far below index search • YouTube, Google+, enterprise, mobile (requires strategy change) • Google’s influence linked to search, which explains why influence is declining significantly. • Time Horizon: Now • Confidence: Very high • Outcome: Bullish for content owners who execute well; bullish for companies picking off new forms of search. Google can grow, but its influence has probably peaked. 3 Elevation: 10 Hypotheses for Tech Investing Hypothesis: Google’s position of dominance on the web is under threat, due largely to the consequences of success Revision 5.3 – July 23, 2011
it has become Digital Detroit: many threats, much insecurity – Apple’s iOS app model simplifies access to information on Internet 8 Consumers pay huge hardware premium for access for content available free on PCs 8 Benefits: brands, differentiated content, safety vs. web’s commoditization, Wild West • Success of iPad confirms iOS defeated HTML 4 web economically; are PCs next? • Content owners are better off with Apple, rather than Google as dominant player, due to Apple’s commitment to intellectual property, brands, security, and comprehensiveness. • HTML5 is next threat to Apple . . . but it’s no bargain for Google; HTML 5 goes beyond app model in terms of giving control to content owners and consumers. • Time Horizon: Now • Confidence: Very high • Outcome: Exceptionally bullish for Apple; big opportunity for major content brands; Issue for Apple: will it accept and support lack of control inherent in HTML 5? 4 Elevation: 10 Hypotheses for Tech Investing Hypothesis: The app model of the iPhone and iPad threatens the open source web, led by Google Revision 5.3 – July 23, 2011
just a programming language; enables new models of web experience – Developers will embed audio and video directly in web pages, replacing Adobe’s Flash plug-in; enables much greater differentiation in sites, advertising, etc. – Content publishers will redesign their sites to reduce power of Google, ad networks • HTML5 will be disruptive in ways we cannot imagine today: pendulum swinging to favor content creators and publishers. Imagine Amazon or eBay storefront as an ad. – Everything can be an app . . . every piece of content . . . every tweet . . . every ad – Ads: create demand and fulfill it at the same time . . . without leaving publisher’s page – Other tech (e.g., Wordnik) enables publishers to protect and monetize text onsite and off • Time Horizon: 2012 and beyond • Confidence: Very high on HTML5 transition • Outcome: Exceptionally bullish over ten years, as HTML5 should inject new life into web; may be a check on Apple. HTML 5 gives Twitter another chance to develop a business. 5 Elevation: 10 Hypotheses for Tech Investing Hypothesis: First major upgrade in a decade to infrastructure of the web will be disruptive, enabling monetizable differentiation of content Revision 5.3 – July 23, 2011
soon, Apple will own the tablet market – What if iPad share is closer to iPod (70%) than iPhone? • iPad has replaced DVD as the most rapidly adopted tech product ever – Corporate adoption coming MUCH earlier in the cycle than with past tech products • There should be competitors, but no one is threatening Apple – Android – HP • If tablets gain traction in enterprises, market opportunity will be effectively unlimited. • Time Horizon: 2011 and beyond • Confidence: High for disruption; no idea on market share • Outcome: Hugely bullish for Apple; possibly bullish for #2 player, if one emerges 6 Elevation: 10 Hypotheses for Tech Investing Hypothesis: Apple’s iPad will be even more disruptive than the iPhone Revision 5.3 – July 23, 2011
won platform war. It’s the new Windows. Key opportunity = licensing Connect. Lesser “established” players (e.g., Twitter, Yelp, Pandora, Skype, LinkedIn) also win as platforms, but FB gets to place a 30% tax on everyone else (e.g., Zynga). – Expect a consolidation phase where traditional brands (e.g., Old Spice) leverage the social web for marketing, boosting influence of FB, other leaders 8 Analogy: web success of brick-and-mortar retailers between 1998 and 2000 – Going forward, “social” must be a feature of every product – Likely threat to Facebook: peer-to-peer social networks. Google+ = uphill battle. • Time Horizon: 2011 and beyond • Confidence: 50% • Outcome: Hugely bullish for FB and anyone who can leverage Facebook. Negative for new “social” start-ups dependent on current web technology. 7 Elevation: 10 Hypotheses for Tech Investing Hypothesis: New entrants face uphill battle for users due to rising engagement of incumbent services; anticipate a period of consolidation by market leaders, leveraged by traditional brands. Revision 5.3 – July 23, 2011
more units, but iPhone earns almost all the profits – iPhone gross margin per unit approximates Android gross revenues per unit • Android continues to gain share, but prosperity has not been great for eco-system. – How vulnerable is data on Android? Seems like Digital South Central Los Angeles. 8 64 apps removed from Android store for stealing user data 8 No vendor is responsible for security of Android products – Security is a business opportunity • Will H-P do anything with webOS? • Time Horizon: 2011 and beyond • Confidence: High • Outcome: Bearish, unless it causes a 3rd network to appear (e.g., peer-to-peer WiFi) 8 Elevation: 10 Hypotheses for Tech Investing Hypothesis: Thanks to Verizon’s commoditization strategy for devices, Apple is the only smartphone vendor with an attractive business model. Revision 5.3 – July 23, 2011
US has least capable wireless infrastructure in developed world – It’s a drag on productivity, competitiveness • Current trends suggest gap will grow – Chronic underinvestment in infrastructure by US carriers – Converged technology is not a silver bullet due to underinvestment • Will an alternative to carriers emerge? • Time Horizon: Current • Confidence: 90% • Outcome: Bearish, unless a 3rd option appears (e.g., peer-to-peer WiFi) 9 Elevation: 10 Hypotheses for Tech Investing Hypothesis: Trying to support two wireless technologies has caused the US to fall behind other developed countries. Allowing carriers to set wireless policy will ensure that the situation continues to deteriorate. Revision 5.3 – July 23, 2011
and satellite vendors have adopted digital technologies for transmission, but prevented such technologies from disrupting their business model – e.g., continued use of Nielsen sampling implies carriers have something to fear from the exactness of web measurement of audience sizes • Latest flat panel televisions have potential to disintermediate cable/satellite vendors by improving the consumer experience – e.g., program discovery, DVR management, etc. • Will anyone step up to this opportunity? • Time Horizon: Now • Confidence: Low • Outcome: The greater the disruption in consumer behavior, the greater the investment opportunity 10 Elevation: 10 Hypotheses for Tech Investing Hypothesis: The convergence of web and television has the potential to disrupt cable and satellite . . . but it probably won’t happen. Revision 5.3 – July 23, 2011
continue for several more years – Revival of Herbert Hoover Economics will produce bad outcomes globally – US government will not deal with real economic issues – Unemployment will remain high, especially on a “fully diluted” basis Market Hypotheses: – NASDAQ no longer functions as a capital formation market. Private secondary trading filling the hole. – Ability of major banks to influence government policy will ensure “best possible” environment for trading – Wall Street has become a centrifuge for spinning the cash out of the economy; capital formation function is broken Recommended Strategy: – Abandon focus on new social platforms – Focus 100% on companies that are cloud + multiscreen; HTML 5 as proxy. 8 Focus on earliest stage, as well as larger beneficiaries of disruption 8 Full contact investing 8 Moonalice has demonstrated power of HTML 5 for live video and audio vault 11 Revision 5.3 – July 23, 2011 Elevation: 10 Hypotheses for Tech Investing
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